CN to Ritz and Raitt: “It’s a sad day for Canada”

“CN is disturbed that the government has decided to punish railways with re-regulation for an outsized crop and winter conditions totally beyond their control,” said CN President and CEO Claude Mongeau. “The legislation does not address the root cause of the current grain situation and will do little to move more grain, now or in the future. We also have deep concerns about the potential consequences of the government’s proposed new interswitching rules.”

Interswitching, equivalent to the concept of reciprocal switching in the U.S. (and to which U.S. railroads are vehemently opposed), is permitted to a limited extent in Canada for grain traffic. It involves the transfer of traffic from the lines of one railroad to the lines of another railroad. Currently, where a shipper is served by only one railroad, the shipper is entitled to transfer its traffic to another railroad at a regulated rate set by the Canadian Transportation Agency if the shipper’s facility, either at origin or at destination, is located any point within a 30-km (18.6-mile) radius of where the two railroads physically connect. The proposed legislation would extend the distance limit to 160 km (100 miles).

“The government is opening the door to extended interswitching limits for specific regions or goods without any due process to assess the potential consequences for railways and the Canadian economy,” Mongeau said: “This action could hit Canada’s railways by opening their business to unfair poaching by U.S. railways without any reciprocity. Beyond causing financial harm to CN, it could drain traffic away from Canadian ports and cause the loss of jobs, reduce investment, and undermine tax revenues across Canada.”

Editor’s note: U.S. railroads are currently fending off an attempt by certain captive rail shippers, represented by such groups as the National Industrial Transportation League, Chlorine Institute, and American Chemistry Council, to influence the Surface Transportation Board to impose forced reciprocal switching.

In addition, said Mongeau, the legislation would give the Canadian Transportation Agency “a highly intrusive role in railway operating matters in arbitrating service-level agreements for specific shippers, with the potential to cause costly inefficiencies in the system. CN firmly believes that commercial incentives and effective supply chain collaboration are the best ways to promote rail investment in infrastructure and resources to transport increased volumes of grain and other freight.”

Mongeau said Ritz’s and Raitt’s action “represents a missed opportunity to take an even-handed approach and encourage supply chain collaboration. Instead, they decided to subject railways to an unnecessary layer of reporting, oversight ,and regulation that can only result in greater rigidity in the supply chain and undermine innovation. If the government is going to go through with this legislation, we urge it to also subject grain elevator companies to greater regulatory oversight in order to ensure proper coordination and adequate resource allocation, with a view to creating surge capacity when crops are more sizable than the norm.”

“It’s a sad day for Canada when the government decides to hit one sector of the economy in order to placate a vocal constituency, instead of fostering sound commercial solutions to strengthen Canada’s transportation infrastructure,” Mongeau concluded.